Question

Which statement correctly distinguishes a tariff from a quota?

Options

• A tariff restricts the quantity of imports, whereas a quota taxes them

• A tariff applies to exports while a quota applies to imports

• A tariff is a tax on imports making them costlier, whereas a quota limits the quantity of goods that can be imported

• Both tariffs and quotas are taxes levied on imported goods

Answer 1

Tariffs and quotas are distinct tools of protection. A tariff is a tax levied on imported goods to make them costlier than domestic alternatives, while a quota places a limit on the quantity of goods that can be imported — one acts on price, the other on quantity.